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How retirement planning is like evolution

In evolution, species demonstrate the ability to survive by adapting to their conditions. Anyone trying to save for retirement today would do well to adopt the same type of pragmatic flexibility.

Retirement planning should start with a long-range plan, but you can't simply lock into a plan and assume everything will work out fine. Just think about some of the unexpected curves that have been thrown at people on their way toward retirement in recent decades:

Before late 2008, one-month CD rates had averaged 6.4 percent historically, and had never dropped below 3 percent. Now, those rates are just 0.16 percent, and have been below 1 percent for four-and-a-half years.

Stock prices climbed by 188 percent in the 1980s, and by 324 percent in the 1990s, but have risen just 17 percent so far in this century.

Inflation has averaged 4.15 percent a year over the past 50 years, but over one 10-year period -- December 1971 through December 1981 -- it averaged 8.62 percent, or enough to reduce the value of a dollar to the equivalent of 44 cents in the space of a decade.

These are just a few of the surprises that have required people to adapt their retirement plans to changing conditions.

Coping with uncertainty

Given the types of unexpected turns described above, how can you adapt your retirement plan to stay on track? Here are some suggestions:

Don't invest passively. Historical returns for asset classes and investment products are worth knowing, but they can't be counted on. Your approach to asset allocation and individual investments should be based more on current conditions than past history.

Put your bank on trial. Once you pick a bank that offers competitive savings account rates, CD rates or money market rates, don't let that bank take you for granted. Keep track of the rate you are being paid, and regularly compare that with other bank rates to make sure your bank is staying competitive.

Manage your career. As important as it is to make the right investment decisions, your nest egg starts with your job security and earning power. Understand that the job market is competitive, and it takes effort to keep up with the competition. Keep your skills up-to-date, and always be sure you can identify how you add value to your employer's organization.

Be prepared to work longer. With people living longer, it makes sense that their careers will have to last a little longer as well. This will not only allow you to save more, but it will cut down on the uncertainty of retirement planning by shortening the period for which you have to plan. If you don't think you will be physically or emotionally able to prolong your current career, think about possibilities for a second career or part-time work so you can make a change without cutting off your income entirely.

Spend realistically. One of the worst mistakes people make is failing to downsize their spending until it is too late. Do what you can to maximize your earnings and investment returns, but if the results are below your expectations, you need to adjust your budget immediately or you will burn through your money too fast.

All of this boils down to staying engaged in your retirement planning so it can evolve as conditions change.

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Advertiser Disclosure: Many of the savings offers appearing on this site are from advertisers from which this website receives compensation for being listed here. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). These offers do not represent all deposit accounts available.